TT RAM MOHAN's comments on the Indian economy, banking and current affairs

Wednesday, February 03, 2016

Disconnect between the elite and the masses

Democracy is about making the rulers accountable to the ruled. The ruling elite cannot afford to be distanced from the masses as they cannot then get the votes they need to gain power.

That is the theory. In reality, the elite everywhere has been getting distanced from the masses, as Martin Wolf points out in a recent article. It is this distancing that is reflected in the unexpected popularity that Donald Trump and Bernie Sanders are enjoying in the US. Voters are disenchanted with traditional parties and their leaders and yearn for change- change at any cost.

One important reason for this, Wolf says, is growing inequality in today's societies. Ordinary people see that growth overwhelmingly favours those at the top.They either stay in the same place or lose out. Ideally, such a situation should throw up alternatives to the traditional parties (as happened with Aap in Delhi). But today elections cost serious money and so it's difficult for meaningful challenges to arise. Sullen voters are faced with a choice between Tweedledum and Tweedledee. Over a long period, this should cause an overthrow of the established order. For a variety of reasons, this has not happened. The result is societies in which discontent and even anger are widespread.

Wolf comes up with several prescriptions for restoring the legitimacy of the elite. One is specific to the west, namely, containing mass migration. This is something that ordinary people find unsettling. But closing the borders it not the answer. The causes of the exodus, such as bloodshed in the Middle East, must be squarely addresssed.

His other prescriptions are more universally applicable:

Second, the eurozone needs to embark on a fundamental questioning of
its austerity-oriented macroeconomic doctrines. It is appalling that
real aggregate demand is substantially lower than in early 2008.

Third, the financial sector needs to be curbed. It is ever clearer that the vast expansion of financial activity has not brought commensurate improvements in economic performance. But it has facilitated an immense transfer of wealth.

Next, capitalism must be kept competitive. We are in a new gilded age
in which business exerts great political power. One response is to
promote competition ruthlessly. This will require determined action.

Then, taxation must be made fairer. Owners of capital, the most
successful managers of capital and some dominant companies enjoy
remarkably lightly taxed gains.
It is not good enough for business leaders to insist that they are
sticking to the law. This is not an adequate definition of ethical
behaviour. This view is particularly disingenuous when commercial
interests play such a powerful role in shaping those laws.

In addition, the doctrine of shareholder primacy needs to be
challenged. Shareholders enjoy the great privilege of limited liability.
With their risks capped, their control rights should be practically
curbed in favour of those more exposed to the risks in the company, such
as long-serving employees. And, finally, the role of money in politics
needs to be securely contained.

There is little sign in India of any of these issues is getting serious attention (with the possible exception of competition being actively promoted).